FocusEconomics panellists expect the GDP to expand 5.1% in fiscal year (FY) 2019, which is unchanged from last month’s forecast, and 4.9% in FY 2020.
Moreover, FocusEconomics said that economic growth is expected to moderate slightly in FY 2019, but remain robust nevertheless. Increased government investment spending and an improved regulatory environment, coupled with an external sector that continues to reap the benefits of a weaker pound, should underpin growing output.
“The 2019 fiscal year got off to a good start in July as operating conditions in the non-oil private sector improved for the first time in three months. The improvement was due to increased demand, both domestic—benefiting from healthy inbound tourism activity—and foreign. However, shortages of raw materials and higher costs weighed on operating conditions in July,” FocusEconomics noted in a report for September adding, “this comes after annual economic growth in April–June, the last three months of FY 2018, remained at the multi-year high recorded in January–March, supported by increased investment and exports.”
Furthermore, in the same period, unemployment fell to the lowest level in seven-and-a half years. Meanwhile, on 28 August, Moody’s raised Egypt’s credit rating outlook from stable to positive, citing progress made by the government in its implementation of IMF-backed structural reforms, the report said.
The report noted that large fiscal imbalances and the higher price of oil will weigh on prospects. Inflation slowed to 13.5% in July, down from 14.4% in June. Higher prices for housing, water, electricity, gas and other fuels underpinned inflation in July, stoked by recent cuts to government subsidies. Our panellists expect
inflation to average 14.0% in calendar year (CY) 2018 and 12.0% in CY 2019.
At its latest monetary policy meeting on 16 August, the Central Bank of Egypt (CBE) left the overnight deposit rate at 16.75%, the overnight lending rate at 17.75% and the main operation rate at 17.25%. The CBE had taken advantage of moderating inflation and cut all rates in March with the aim of boosting the economy. Our panellists expect the overnight deposit rate to be reduced further to 15.58% by the end of CY 2018 and 13.63% by the end of CY 2019.
The report said, “although the CBE has allowed the value of the pound to be determined by market forces since November 2016, authorities have continued to ensure stability in the exchange rate against the dollar. On 31 August, the pound traded at EGP 17.83 per dollar, a 0.2% month-over-month getting stronger.”
The report panellists expects the Egyptian pound to remain fairly stable and end CY 2018 at EGP 17.84 per dollar, before weakening to EGP 18.05 per dollar by the end of 2019.
In July, urban consumer prices rose 2.43% from the previous month, less than June’s 3.48% increase. July’s increase was driven by more expensive fresh fruit and vegetables, particularly potatoes. Moreover, higher prices for regulated items, particularly electricity, tobacco, and government services, contributed to increased consumer prices in July compared to June.
Urban inflation decelerated to 13.5% in July from 14.4% in June. Urban core inflation decelerated to 8.5% in July from 10.9% in June, partly due to a high base effect. Meanwhile, annual average inflation decelerated to 19.3% in July from 20.9% in June.
FocusEconomics Consensus Forecast participants expect inflation to average 14.0% in calendar year 2018, which is down 0.3 percentage points from last month’s estimate. In calendar year 2019, inflation is forecasted to slow to 12.0%.
FocusEconomics Consensus Forecast panellists expect the overnight deposit rate to end calendar year 2018 lower at 15.58% and calendar year 2019 at 13.63%.